United States v. Rogan, Peter ( 2008 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 06-4144
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
PETER G. ROGAN,
Defendant-Appellant.
____________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 02 C 3310—John W. Darrah, Judge.
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ARGUED SEPTEMBER 21, 2007—DECIDED FEBRUARY 20, 2008
____________
Before EASTERBROOK, Chief Judge, and KANNE and
ROVNER, Circuit Judges.
EASTERBROOK, Chief Judge. For more than a decade be-
fore Edgewater Medical Center closed in December 2001,
Peter Rogan was a principal manager and financial
beneficiary—both directly and through his family’s interest
in Braddock L.P., Edgewater’s management company.
Toward the end of Edgewater’s existence, Braddock
(renamed Bainbridge Management, L.P.), Roger Ehmen
(Edgewater’s vice president of development and market-
ing), and four physicians (Ravi Barnabas, Andrew Cubria,
Sheshiqiri Rao, and Kumar Kaliana) were indicted for
fraud and other crimes related to bills that Edgewater
had presented to the Medicare and Medicaid programs.
2 No. 06-4144
All six defendants pleaded guilty. Bainbridge was fined
and ordered to pay restitution; the other defendants
received sentences ranging from 52 to 151 months’ im-
prisonment.
Rogan was not indicted. Instead the United States filed
this civil action against him under the False Claims Act,
31 U.S.C. §§ 3729–33. The theory of the case is that Rogan
conspired with the six indicted persons to defraud the
United States by concealing the fact that many patients
came to Edgewater only because of referrals that violated
the Stark Amendment to the Medicare Act, 42 U.S.C.
§1395nn, and the Anti-Kickback Act, 42 U.S.C. §1320a–7b.
Edgewater paid the four physicians for patients rather
than medical services. The complaint added that, apart
from the fact that the Stark Amendment forbids federal
reimbursement for services that stem from compensated
referrals, many of the bills were padded: they listed
services that were unnecessary or had not been performed.
The district court held a bench trial, found that Rogan
knew about these shenanigans (and may have orchestrated
them), and ordered him to pay a total of $64 million and
change. 459 F. Supp. 2d 692 (N.D. Ill. 2006). The district
court’s comprehensive opinion describes the scheme’s
details.
In this court Rogan does not deny that illegal referrals
occurred, that kickbacks were paid, that the bills sent
to the United States omitted this information, and that
he knew what was going on. Instead he argues that the
omissions were not material. By this he does not mean
the usual definition, under which a “statement is mate-
rial if it has ‘a natural tendency to influence, or [is]
capable of influencing, the decision of the decisionmaking
body to which it was addressed.’ ” Neder v. United States,
527 U.S. 1, 16 (1999) (quoting from Kungys v. United
States, 485 U.S. 759, 770 (1988)). The omissions were
material by that standard, because the Stark Amendment
No. 06-4144 3
forbids payment of any claim that arises from medical
services rendered to a patient who had been referred
improperly. See United States ex rel. Thompson v. Colum-
bia/HCA Healthcare Corp., 125 F.3d 899, 902 (5th Cir.
1997). Rogan agrees that this is so but argues, none-
theless, that a federal employee in a position to take a
decision had to testify that the government was sure to
enforce the statute.
That’s not a component of materiality. A statement or
omission is “capable of influencing” a decision even if
those who make the decision are negligent and fail to
appreciate the statement’s significance. Suppose someone
who applies for a loan represents that he has a net worth
of $2 million, when his actual net worth is -$2 million. A
loan officer might fail to see the minus sign (had one
been included), but the lie would be material anyway,
because net worth strongly influences lending decisions.
So, too, information that a hospital has purchased patients
by paying kickbacks has a good probability of affecting
the decision. The question is not remotely whether
Edgewater was sure to be caught—though it would have
been, had it disclosed the truth on all 1,812 reimburse-
ment requests—but whether the omission could have
influenced the agency’s decision. That’s an objective
standard, here controlled by the Stark Amendment.
Testimony from a claims-processing officer along the
lines of “I follow the law” is not required.
Another way to see this is to recognize that laws against
fraud protect the gullible and the careless—perhaps
especially the gullible and the careless—and could not
serve that function if proof of materiality depended on
establishing that the recipient of the statement would
have protected his own interests. See United States v.
Rosby, 454 F.3d 670 (7th Cir. 2006). The United States
is entitled to guard the public fisc against schemes de-
signed to take advantage of overworked, harried, or
4 No. 06-4144
inattentive disbursing officers; the False Claims Act does
this by insisting that persons who send bills to the Trea-
sury tell the truth. As Justice Holmes put it, “[m]en must
turn square corners when they deal with the Government.”
Rock Island, Arkansas & Louisiana R.R. v. United States,
254 U.S. 141, 143 (1920).
Rogan asserts that the United States did not rely on
the omissions. Reliance is an element of a civil action
under the False Claims Act but is easy to show: the truth
would have revealed that reimbursement is illegal.
Rogan’s assertion that some disbursing officer had to
testify that the United States does not pay illegal claims
is just a repackaged version of the materiality argu-
ment and fails for reasons already given.
Nor does Rogan get any mileage from the argument
that Edgewater’s records do not “rule out” the possibility
that the four physicians provided some medical services.
Ruling things out is not the standard in a civil suit (or
even in a criminal prosecution). The district judge gave
careful attention to the codes on the records and con-
cluded that the physicians used codes to identify re-
ferred patients. Rogan could hardly expect the admitting
form to read “patient acquired by kickback” as opposed to
some seemingly innocuous notation that those in the
know (such as Ehmen) would take as the cue to pay the
agreed price to the referring physician. That the codes
included words such as “attending,” which could mean
that the physician rendered medical services, does not
compel the district judge to find that services were ren-
dered. Rogan does not try to show that any of the detailed
factual findings on this score is clearly erroneous. (His
argument that the district judge had to address each of
the 1,812 claim forms is a formula for paralysis. Statistical
analysis should suffice. At all events, Rogan didn’t bother
to provide information on that subject in the district
court and has forfeited this position.)
No. 06-4144 5
We pass some other arguments in silence (they have
been considered but are insubstantial) and reach the
question whether the monetary award is excessive. To a
considerable extent, the challenge to the $64 million award
repeats contentions already addressed; we need not re-
cover that ground. Nor do we think it important that
most of the patients for which claims were submitted
received some medical care—perhaps all the care re-
flected in the claim forms. (At Rogan’s insistence, the
district judge excluded as irrelevant any proof that
Edgewater billed for unnecessary or non-delivered ser-
vices.) Edgewater did not furnish any medical service to
the United States. The government offers a subsidy (from
the patients’ perspective, a form of insurance), with
conditions. When the conditions are not satisfied, nothing
is due. Thus the entire amount that Edgewater received
on these 1,812 claims must be paid back. Now it may
be that, if the patients had gone elsewhere, the United
States would have paid for their care. Or perhaps the
patients, or a private insurer, would have paid for care
at Edgewater had it refrained from billing the United
States. But neither possibility allows Rogan to keep
money obtained from the Treasury by false pretenses, or
avoid the penalty for deceit.
The False Claims Act provides for treble damages plus
a per-claim penalty. See 31 U.S.C. §3729(a). Edgewater
received approximately $17 million on its false claims;
this was trebled, the penalty added, and the amount of
restitution paid by Braddock subtracted, to produce the
judgment of $64 million. Rogan contends that $64 million
violates the Excessive Fines Clause of the Eighth Amend-
ment because it is grossly disproportionate to the wrong.
It is far from clear that the Excessive Fines Clause
applies to civil actions under the False Claims Act.
Browning-Ferris Industries of Vermont, Inc. v. Kelco
Disposal, Inc., 492 U.S. 257 (1989), holds that punitive
6 No. 06-4144
damages are not “fines” under the Eighth Amendment, and
treble damages are often grouped with punitive damages.
We know from Hudson v. United States, 522 U.S. 93(1997), overruling United States v. Halper, 490 U.S. 435(1989), that penalties under the False Claims Act are
not criminal punishment for the purpose of the Double
Jeopardy Clause in the Fifth Amendment. Perhaps this
means that the Excessive Fines Clause also is inap-
plicable, though Browning-Ferris does qualify its holding
by saying that penalties paid to the sovereign can be
“fines” under the Eighth Amendment. 492 U.S. at 265. The
False Claims Act has a penal component, no doubt, see
Cook County v. United States ex rel. Chandler, 538 U.S.
119, 130 (2003), but “penal” does not mean “excessive,” for
“judgments about the appropriate punishment for an
offense belong in the first instance to the legislature.”
United States v. Bajakajian, 524 U.S. 321, 336 (1998).
All of this leaves the law unsettled. Matters need not be
sorted out today, for several reasons (in addition to the
norm that constitutional decisions must be avoided when
possible). First, Rogan did not make an excessive-fines
argument in the district court, and there is no general
doctrine of plain-error review in civil cases. (The exception
for jury instructions, see Fed. R. Civ. P. 51(d), does not
cover Rogan’s situation.) Second, it is impossible to know
whether the penalty is constitutionally “excessive” without
knowing what conduct the fine penalizes. Rogan persuaded
the district court to exclude evidence that medical services
were unnecessary, or never performed, because (Rogan
insisted) this would not matter to the penalty under the
False Claims Act. But this certainly would matter to an
excessive-fines analysis. Rogan himself has made the
record unsuitable to resolution of his constitutional
argument.
Finally, the total is less than four times actual damages,
well within the single-digit level that State Farm Mutual
No. 06-4144 7
Automobile Insurance Co. v. Campbell, 538 U.S. 408(2003), thinks not “grossly excessive” for punitive damages.
It’s hard to see why the Court’s approach to punitive
damages under the Fifth Amendment would differ dramat-
ically from analysis under the Excessive Fines Clause. (If
there is to be a difference, one would think that a fine
expressly authorized by statute could be higher than a
penalty selected ad hoc by a jury.)
Neither the record nor any data to which the parties
have drawn our attention shows the likelihood that
schemes such as Rogan’s will be caught. The lower the rate
of a fraud’s detection, the higher the multiplier required to
ensure that crime does not pay. See A. Mitchell Polinsky
& Steven Shavell, Punitive Damages: An Economic Analy-
sis, 111 Harv. L. Rev. 869 (1988). Without this informa-
tion a court cannot know what multiplier is appropriate
for compensation and deterrence; for all we can tell,
Rogan’s penalty may be too low.
AFFIRMED
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—2-20-08